UK’s Tidal Lagoons to Have Cheaper Power than Offshore Wind

An economic study into the cost profile of power from tidal lagoons has found that a portfolio of three UK tidal lagoons, in operation by 2021, would deliver large-scale low carbon power at a significantly cheaper price than offshore wind.

The study, conducted by energy economists at Pӧyry, a management consultancy, identifies a volume-weighted levelised cost of energy for the three lagoons as around £100 MWh. The Government’s central LCOE assumption for a Round 3 offshore wind farm in 2021 is £131 MWh. The cheapest of the projects assessed, Lagoon 3, has a levelised cost of around £90 MWh, broadly similar to onshore wind, large-scale solar PV, nuclear and gas-fired generation.

As with all forms of low carbon generation, tidal lagoons will require Government support via a pre-defined ‘strike price’. Pӧyry’s central assessment of the required CfD strike price for the first three lagoons studied on a volume-weighted average basis is £111 MWh. At present, other forms of marine energy are offered a strike price of £305 MWh and offshore wind projects are offered £155 MWh.

This month, plans for the Swansea Bay Tidal Lagoon, the world’s first tidal lagoon power plant, were accepted for consideration by the Government’s Planning Inspectorate, initiating an examination process that its developer, Tidal Lagoon Power, hopes will see construction commence in spring 2015, with first power being generated in 2018.

Pӧyry found that the 320MW proof-of-concept project requires a strike price of £168 MWh, slightly higher than the £140 MWh offered to offshore wind projects in 2018/19. With an estimated required strike price of £130 MWh in 2020, Lagoon 2 is cost competitive with offshore wind and at £92 MWh in 2021, Lagoon 3 is significantly cheaper. Although unnamed due to commercial sensitivities, Lagoons 2 and 3 are taken from Tidal Lagoon Power’s pipeline of live development projects. Neither has yet benefited from the same optimisation process that saw a 20% increase in power output at the Swansea Bay Tidal Lagoon.

The reduction in required support from Lagoon 1 to Lagoon 3 is driven by moving to bigger sites with higher tidal range and does not rely on an assumption of technology learning. Tidal Lagoon Power’s pipeline includes projects that are larger than Lagoon 3.

Mark Shorrock, CEO of Tidal Lagoon Power, said that electricity generation from tidal lagoons will continue to get cheaper: “This study clearly demonstrates that tidal lagoons can rapidly become one of the cheapest sources of electricity in the UK. The more water we impound, the more power we produce, the less support we require. It really is that simple. And with an operating life of over one hundred and twenty years, tidal lagoons offer future generations even lower cost electricity following their thirty-five year period of strike price support.”

The study notes that the very long asset life of a tidal lagoon makes it equivalent to five generations of offshore wind investment and two generations of investment in nuclear power production and clean-up. When compared at a social discount rate of 3.5%, a rate commonly used by Government to evaluate the future costs and benefits to consumers of policy decisions, the study found that even Lagoon 1 has levelised costs that are competitive with offshore wind. While power from Lagoons 2 and 3 would be cheaper than that of a gas-fired power station.

Gareth Davies, Director at Pӧyry Management Consulting, said that tidal lagoons could add diversity to the UK low-carbon generation mix at a competitive price: “Tidal lagoons have the potential to provide renewable electricity which is both affordable in the short term and secure for the long term.

“The Government’s budget for total low-carbon electricity support is around £7.6bn per year by 2020. We found that the Swansea Bay Tidal Lagoon will require approximately £13m more annual support than for the equivalent volume of offshore wind generation, albeit for a longer period of time. This relatively low level of additional support creates the option to develop the larger and cheaper projects in the pipeline.”

Press release, March 21, 2014; Image: tidallagoonswanseabay